* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON Feb 20 French government bonds yields
steadied on Monday, as investor concern about a tie-up between
the two main left candidates in France's presidential election -
potentially opening the door to a far-right victory - eased.
France's borrowing costs, which have gone up sharply this
year on heightened concerns about the election, rose on Friday
on worries that possible cooperation between Socialist Benoit
Hamon and hard-left candidate Jean-Luc Melenchon could
strengthen the position of the National Front's Marine Le Pen.
Markets are concerned about Le Pen's anti-euro stance, among
Should Hamon and Melenchon join forces, opinion polls
suggest their combined vote could put them in the second round
of voting on May 7 facing Le Pen - a scenario that has not been
explored by major surveys in recent months.
But the weekend ended with no signs of a pact between the
two leftist candidates, bringing some relief to French bond
markets for now, analysts said.
Melenchon would raise spending by 273 billion euros ($290
billion), his team said in a presentation online on Sunday.
The proposed measures, which include a 15 percent increase
in France's minimum wage, new funds to fight poverty and create
new jobs, underscore the gap Melenchon would have to bridge with
Hamon in order to find a common platform for the April and May
"It looks superficially that Hamon and Melenchon were not
looking to tie-up and that reduces market pricing of a Le Pen
victory," said Mizuho rates strategist Peter Chatwell. "But
there's still a decent probability the two candidates are forced
He added that because investors are heavily positioned
against French bonds, any mildly supportive developments force a
covering of those bets.
France's 10-year bond yield dipped 0.5 basis points to 1.04
percent, squeezing the gap over German peers to
around 73 bps from around 75 bps on Friday.
Germany's benchmark 10-year bond yield rose 1 bps to 0.32
percent, while other euro zone bond yields were
mostly little changed.
With U.S. markets closed for a holiday on Monday, trade was
generally subdued and focus remained on political developments
in the euro zone.
In Italy, former prime minister Matteo Renzi resigned as
head of the ruling Democratic Party on Sunday, opening the way
for a leadership fight in which he will take on rivals
threatening to split the centre-left.
Martin van Vliet, a senior rates strategist at ING, said
that while the leadership contest lowered the chances of snap
Italian elections soon, the rift in the ruling party was
negative for Italian bonds.
Euro zone finance ministers also meet later in the day to
discuss Greece's progress in fulfilling the conditions of its
For Reuters Live Markets blog on European and UK stock
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(Editing by Jeremy Gaunt)